An extremist, not a fanatic

March 18, 2009

Unemployment: what to do?

In light of today’s terrible unemployment numbers (pdf)- a 138,400 rise in the claimant count in February alone - this new paper (pdf) by David Bell and David Blanchflower is especially important.They remind us that unemployment is very costly. It reduces well-being even among those who keep their jobs, increases crime and stress and reduces life expectancy. And among young workers it has a scarring effect; being unemployed when young increases one’s chances of being unemployed when older. This is an especial problem because unemployment is disproportionately concentrated among the young; today’s figures show that 18-24 year-olds account for 30.6 per cent of all the unemployed. So, what can be done? Bell and Blanchflower are sceptical about active labour market programmes - policies aimed at “helping” the jobless into work. These are of limited use in good times, and are likely to be less useful in bad ones.Instead, they have a number of ideas. One is a massive fiscal stimulus; £87bn, if we follow the US’s lead, they estimate. Other ideas they have are: to encourage 18-24 year-olds into training schemes; tax breaks to encourage firms to hire youngsters; encouraging work-sharing, via the tax credit system; and raising the education leaving age to 18.However, they recognize that these policies are mere palliatives. They won’t stop unemployment rising, probably to over 3 million by year-end.And there’s the point. As Michal Kalecki pointed out, unemployment is “an integral part of the normal capitalist system.” It’s just fantasy to believe you can have capitalism (or perhaps any form of market economy) without unemployment.For me, the question is: to what extent is it possible to increase ways of pooling risk - reducing the pain of unemployment - without dampening incentives? My hope - which is not strongly held - is that this recession will lead people to acknowledge that this can be answered in the affirmative. (Hint:citizens’ basicincome).

Comments

Agreed you cannot have a capitalist system without unemployment - if for no other reason than creative destruction and frictional unemployment, never mind business cycles.

But we have a mixed economy with a large state controlled element. Might it be possible to designed countercyclical state job creation? I know this sounds trite, but things like street cleaning, upgrading all that shoddy MoD housing, planting trees, installing heat pumps in houses, etc. can all absorb workers. Things that can be scaled relatively quickly. Can't a "ministry of works" step up maintenance and fixed capital investment in UK infrastructure during downturns? And as the paper you cite suggests, we can "employ" people in education (human capital investment) and so on.

I know none of this will 'solve' recessions, but it might help. I don't quite understand why things shouldn't be set up so that the state is able to absorb and useful employ workers on short-term projects during downturns, as a component of countercyclical fiscal policy. I don't see why we can't get better at expanding employment during recessions.

yup, I see the problem, but I don't see why we cannot ties our hands a little - have the BoE officially forecast a recession, and authorize pre-existing spending plans that are constrained to be temporary. You know, write some rules or something. It wouldn't be perfect, but I don't see why it couldn't be better than what we've got.

If we take your objection too seriously, doesn't it mean that countercyclical anything is impossible? Is that degree of pessimism warranted?

"Might it be possible to designed countercyclical state job creation?" Yes, picking poly bags out of hedges. By the time the depression is over we won't be able to afford poly bags and the problem will have gone away.

My worry is that because they aren't including the underemploymed in these figures things are actually even worse than they make out.

I finished Uni last summer and from then till only recently have been doing nothing but pub work at an average of 15 hours a week, unable to find a full-time job in my lcoal town. I pretty much felt unemployed, and yet I and I'm sure many in the same situation as me weren't included in the figures. Okay, over Christmas I did secure a great job starting in September, but till then I was fucked until my Dad reckoned he could employ me till then doing basical clerical office work.

And from other friends and family all I hear is that, even though people aren't necessarilly getting laid off, their hours are being reduced.

Then there's my friends who, as you say, are unemployed young and are more likely to be unemployed when older. I couldn't agree more.